The price of North Sea oil has crashed to its lowest level in 11 years as traders fretted about global overproduction.
The benchmark Brent blend traded down 2% at $34.83 a barrel, bringing a third day of losses but lower potential petrol costs for motorists.
Gloomy economic news from China has soured expectations about stronger oil demand while producing countries continue to pump crude flat out.
Analysts believe the value of oil is likely to fall further. This is despite fresh political tensions in the Middle East involving Saudi Arabia and Iran, which would usually push up prices.
“With the lack of a strong upward catalyst on the horizon, we are not out of the [low oil price] woods yet,” said Miswin Mahesh, an oil market analyst at Barclays Capital, adding: “Non-Opec production from the North Sea, Canada and Brazil is falling, but not quick enough at a time when demand is weak, partly due to a mild winter in the northern hemisphere.”
A fifth consecutive month of weaker manufacturing data in China and evidence of ever-lower rail freight volumes have spread panic among Chinese investors, leading to a 7% fall in equity prices on Monday. They have since regained some ground.
China, the driver of recent global economic growth, is slowing faster than expected, meaning oil imports are likely to be lower than anticipated.
In the past, the Saudis have encouraged Opec (Organisation of the Petroleum Exporting Countries) to reduce its output targets during periods of low oil prices. This time it has stuck fast in what most market watchers believe is a deliberate attempt to drive competitors from the US shale fields out of business. This ploy has been only partly successful.
American output, which has surged in recent years, has remained relatively strong despite oil prices falling from their $115 peak in June 2014.
The growing rapprochement between the west and Iran has increased the likelihood of a huge increase in Iranian crude exports just as Iraq and other countries are ramping up output.
This has influenced price makers more than the growing standoff between Saudi and Iran over the recent execution of a Shia Muslim cleric and the terrorist attacks on Libyan oil storage tanks.
The tumbling oil price has made refined products, including petrol, cheaper. The average price of unleaded fuel fell by more than 4p a litre in December to 102.89p and reduced the cost of filling up a family-sized car by more than £2.
Four supermarkets cut their petrol prices to below £1 a litre last month and the RAC motoring organisation said on Wednesday that pump prices were likely to fall further.
This article was written by Terry Macalister, for theguardian.com on Wednesday 6th January 2016 13.09 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010